The conventional wisdom is that, when the seas get rough, it’s better to be in a big boat. But being in the European Monetary Union (EMU) hasn’t exactly been smooth sailing for all its members. On the contrary, as I argued in my blog posted January 21, the crisis has highlighted that sound policy frameworks are more important than ever.

Let’s look at this experience from the perspective of the European Union’s new member states in the East, who are still outside the EMU but are set to join sooner or later. Should they accelerate or delay their applications? And what are the conditions for success, once they have gained entry?

Fixers and floaters

The answer to the first question depends in large part on the currency regime. For small and very open countries with fixed exchange rates—the three Baltic republics and Bulgaria—there is really no alternative to seeking EMU membership as fast as possible. They have been particularly hard hit by the crisis, partly because of their currency regime; in fact, Latvia had to rely on massive external support to pull through the crisis. But they all have managed to hold on to their long-standing currency pegs against the euro. Once in EMU, their economic policy frameworks would remain virtually unchanged. At the same time, euro adoption would remove residual currency and liquidity risks, which during the recent crisis have driven up borrowing costs, dented investor and consumer confidence, and contributed to their sharp output contractions. So for the peggers, joining the club is all gain and no (additional) pain.